Banks face bigger NAMA losses
Banking
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THE banks could be facing further losses -- and a possible need for more state capital -- from the transfer of the rest of their development loans to NAMA.
"The revised business plan from NAMA highlights a further deterioration in asset quality," NCB Stockbrokers analyst Ciaran Callaghan said in a note for clients.
"We cannot discount the prospect of steeper subsequent haircuts relating to the remaining transfers, creating further negative capital ramifications for the banks."
His colleague in the research department, chief economist Brian Devine, agreed there might be further NAMA losses, but said they are not the real issue for Irish government debt.
If NAMA ended up losing half the money it has paid for the bank loans, it would add 10pc to Ireland's debt burden, as a percentage of GDP, in nine years time -- assuming average 2pc annual economic growth, Mr Devine calculates.
But the budget crisis will cause the debt burden to rise by 13 percentage points of GDP over the next two years, with the level exceeding 100pc of GDP in 2012. Net debt, after allowing for the national pension fund, will be 85pc of GDP.
"The underlying gap between spending and taxation saw Ireland borrow 11.8pc of GDP in 2009 and that is once again forecast for 2010.
"Throw in the compounding effect of the interest payments on those borrowings and it is clear that this is a far more pressing issue for Irish debt," Mr Devine wrote.
He said a clear and credible plan was needed for Anglo Irish Bank. "The injections into that institution are also far more important for Irish debt than the unknowable future of NAMA. To date, the Government has injected approximately 9pc of GDP into Anglo.
Mr Callaghan noted that more than half the first tranche of loans transferred to NAMA were investment loans (for purchase of existing assets) rather than development loans.
Investment loans are regarded as less risky than development ones but are expected to make up only 30pc investment loans for the entire NAMA transfer.
The haircut may therefore have to be bigger even than the 50pc reduction paid to the banks for the first tranche.
- Brendan Keenan
Irish Independent
